Today’s economic recession is one of the best times for smaller Canadian businesses to doggedly pursue new inventions say experts in innovation.

That’s because most of the big players are acting very cautious, cutting back and sticking to the basics, rather than taking a risk with a pricey new product launch.

“The General Motors of the world won’t be innovating today — so small firms have an opportunity to get their foot in door,” said Av Utukuri, president and chief technology officer of Nytric Ltd. Based in Mississauga, Ont., Nytric that helps businesses commercialize innovative products.

“Canadians are very casual and relaxed about our success,” Utukuri said, noting that such an attitude could dampen innovation.

But one Canadian business-owner whose spirit of innovation remains as powerful as ever is James Hildebrandt, founder of Psyko Audio Labs, based in Calgary.

Nine years ago, with a new idea on how headphones could be redesigned, Hildebrandt began researching and developing how the ear absorbs sound.

He used his findings to develop a pair of surround-sound headphones to be used while playing computer video games.

The headphones won’t be available until May or June this year, but they are already garnering a lot of international attention, winning two awards for best headphones at the Consumer Electronics Show in Las Vegas in January.

“It’s a bit like a rookie going to the World Series and hitting two home runs,” Hildebrandt said. “We didn’t expect that kind of attention.”

The Psyko 5.1 headphones mimic the way your brain absorbs sound by putting the speakers on the bridge of the headphone rather than the ear cover, and creating a sound field around each ear, which reflects off the ear the way it should in a room.

When sound comes down the hollow tubes over your head, signals are sent to the front and rear of your ears. So the sound is heard from ahead or behind, based on where the footsteps or gun shots are coming from in relation to your avatar in the video game.

Developing the product has taken almost a decade, he said. “There are a billion details that you need to work out and people will warn that it is more work than you expect, but it doubled and tripled what I thought it would take.”

Meanwhile, Hildebrandt’s “to do” list is seemingly endless – from finessing the product to taking care of legalities, government regulations and public relations.

The headphones are being sold on the international market, with many American and Asian gamers pre-ordering off their site.

Some of the world’s most useful and technologically advanced solutions have been born in a Canadian’s home office or laboratory.

The BlackBerry, the IMAX Theatre and the goalie mask, to name just a few, are all Canada-made products, which wouldn’t have materialized without investment and a huge leap of faith by a risk-taking entrepreneur.

Three in five Canadians say they have had an idea for a new invention and 14 per cent of these have considered taking their product to market, according to a new survey commissioned by Nytric.

In terms of innovation, per capita, Canada is at the forefront, said Nytric’s Utukuri. But many Canadians aren’t aware of Canada’s capabilities as inventors, he said.

The Nytric survey bears out this view.

It found that while most polled Canadians polled were aware the goalie mask and snow blower are Canadian inventions, only 8 per cent knew the electric oven is also the product of Canadian innovation.

As market demands change every 10 years or so, new product developments are needed to keep pace — and Canadians need to be constantly innovating to stay ahead of the curve.

Fostering innovation and entrepreneurship in Canada is essential to the nation’s economic future, Nytric’s Utukuri said.

“We should not only invest in our human capital, but also in the innovative concepts developed by these enterprising Canadians. Who knows what ideas have the potential to transform Canadian businesses or whole industries?”

However, there are barriers to new product development, according to the Nytric survey.

It found inability to secure funding and not knowing where to start, are the biggest obstacles to Canadians seeking to market their own ideas.

In its dual role as venture capital cum innovation consulting firm, Nytric has tried to address some of the confusion surrounding new product development – marrying investment funds with business advice.

Over the past 10 years, it has helped 22 new companies.

For instance, Nytric has helped fund and develop It’s a Wrap, an automated machine that wraps and bands silverware in a table napkin for restaurants and hospitals, as well as the P5 Glove, a wearable human interface device that improves 3D gaming interaction.

Despite Nytric’s success in funding new tech innovations, Canada still suffers from a lack of private equity partners willing to invest in new product ideas, Utukuri said.

“People don’t realize what we have to offer one another and there is a fear of investing in new technology coming out of Canada.” He said innovations aren’t marketed particularly well over here.

Canadians, he noted, also fear investing more than they do in the U.S. “We are more conservative and aren’t risk-takers, but we need that environment in order to grow.”

Venture capital in 2008 was the lowest recorded since 1996, according to a report released by Canada’s Venture Capital and Private Equity Association (CVCA).

Across the country, $1.3 billion was invested, a drop of 36 per cent from the $2.1 billion invested in 2007. There was also a drop in the number of firms being financed (a 10 per cent drop) – 371 firms in 2008 versus 412 in 2007.

A thriving venture capital industry is one of the most important ingredients in innovative economy, the report found, mainly because venture capital stimulates young technology firms that are more likely to identify new opportunities for products, outside of existing models.

In Canada, local venture capital funding isn’t the only investment category that’s suffering.

Investments by foreign venture capital firms in Canada are also falling sharply after a couple years of noteworthy growth, according to Richard Remillard, executive director at CVCA. .

The impact of venture capital-backed firms on the Canadian economy is quite significant, he said. They create close to 150,000 jobs, and account for nearly 1 per cent of the GDP. Their overall economic impact is also significant as they grow five times faster than the overall economy.

Over the next few years, Remillard expects there will be fewer new companies in Canada, fewer jobs, and fewer export dollars earned.

A big reason for this phenomenon, he said, is decreasing funds in venture capital accounts and the lag between investment and the time it takes to produce a product after the R&D stage.

Luckily a few of the provincial governments are addressing the lag, he said: Quebec tabled its budget couple weeks ago with some very interesting initiatives, Ontario’s budget announced $250 million for an emerging tech fund, and B.C. introduced a renaissance enterprise fund and a few provincial tax credits.